News & Investment Updates From Bluegrass Capital Advisors

As humans, we’re wired to crave certainty.

It’s comforting to think we can predict what’s coming next — in life, in markets, and in the broader world.

This desire for certainty isn’t just a quirk; it’s rooted in cognitive biases that shape how we interpret the world. Recency bias tempts us to overemphasize recent events, assuming today’s trends will continue indefinitely. Overconfidence convinces us we know more than we do, emboldening us to make predictions we can’t possibly guarantee. And confirmation bias leads us to seek out information that aligns with what we already believe, reinforcing flawed assumptions.

These biases don’t just influence individuals. They shape market sentiment, often leading to predictions that seem logical in the moment but unravel with time.

At Bluegrass Capital Advisors, we aim to sidestep these traps by trading the allure of certainty for the discipline of a systematic approach. Instead of speculating about what SHOULD happen, we focus on following what IS happening, using trends to guide us through uncertainty.

As we reflect on 2024 — a year that defied many expectations — and prepare for 2025, we’re reminded that resilience comes from acknowledging uncertainty rather than resisting it. In this month’s note, we explore how the past year unfolded, the lessons we’ve drawn, and the opportunities we see ahead.

But first, here’s a summary of the global asset classes utilized in our portfolios and their exposures for January.

In investing, the allure of certainty can be hard to resist. When parts of a portfolio underperform in the short term, the urge to abandon them grows, driven by a desire to focus solely on what’s working. But this desire often leads investors away from the principles of diversification — principles designed to build resilience over time, not deliver comfort in the moment.

Behavioral psychology helps explain why.

Recency bias, our tendency to overemphasize recent outcomes, tempts us to double down on short-term winners while discarding slower-moving assets. This instinct is natural but can be dangerous. It ignores the fact that markets are dynamic, and today’s laggards can often become tomorrow’s leaders.

For trend followers, diversification is non-negotiable. A systematic, data-driven approach can be used to allocate across markets — knowing that not every position will perform at the same time. This discipline ensures the portfolio is ready for whatever comes next, even if it means enduring temporary discomfort.

Resilience, not perfection, is the goal.

A well-diversified portfolio isn’t built to make every position shine in every market. It’s built to adapt. This means accepting the ebb and flow of performance without second-guessing the process. In moments when diversification feels frustrating, it’s worth remembering that resilience comes from sticking to the plan, not reacting to short-term noise.

As the year draws to a close, predictions about what’s ahead will swirl. Inevitably, many will miss the mark. That’s why we focus on a systematic approach, allowing markets — not opinions — to guide us. While systematic trend following isn’t immune to challenges, its emphasis on discipline and adaptability has repeatedly demonstrated value in helping navigate uncertainty.

In this Investment Update, we explore how diversification and discipline shaped our approach in another year of unexpected twists and turns.

But first, here’s a summary of the global asset classes utilized in our portfolios and their exposures for December.